ITV: streaming launch not enough for investors to feel the love

Love Island has been a big hit for ITV. But investors feel little affection for the leading UK commercial broadcaster. Its share price has halved since January 2018 when chief executive Carolyn McCall took over.

Operating profits have travelled sideways as streaming services such as Netflix and Amazon lured viewers away from linear programming, ITV’s mainstay business.

McCall’s latest effort to revive the channel is a new video-on-demand service, ITVX. With a wink at market bears who doubted ITVX, the broadcaster on Friday announced a 55 per cent leap in streaming hours year on year during the first month of operation. Expectations for ITVX were low, so positive news gave a decent boost to the shares.

Comparisons are tricky. ITV had put its live football World Cup matches on ITVX, a big draw. Weighing up the end of 2022 against the same period of 2021 is unfair, whatever they say about love and war.

That brings up another problem for ITV this coming first quarter. Russia’s invasion of Ukraine, and the energy crisis that followed occurred this time last year. Expect more tough comps.

ITV had budgeted £225mn to load strong content on to the site ahead of the launch, and duly delivered three spy-related hits.

Can McCall afford to keep splashing out? It helps that ITV has said nothing negative (or positive) about its 2022 outlook for advertising revenues. McCall has forecast that these will fall just over 1 per cent. Even optimists at Citi expect a further 5 per cent fall in 2023.

A few months ago, ITV shares looked very cheap at under 5 times 2022 net earnings. With a 29 per cent decline in 2023 profits, on Visible Alpha consensus, that climbs to 8.5 times. That means less cash flow, squeezing the buffer protecting the dividend.

ITV is to be congratulated on the launch success. It is doing its best to adapt. But the broadcaster remains primarily an ad-dependent linear broadcaster favoured by older viewers on middling to lower incomes. Investors can give this show a miss.